Our main goal at Slater All Lines Insurance School is to teach our students the information they need to pass the Washington State Insurance Producer Exam. This is Part 1 of our new Insurance Exam Sneak Peak series. We want to provide students with an inside look at some of the topics covered in our Insurance Exam Classes.
What is a Health Savings Account (HSA)?
A Health Savings Account lets qualifying individuals save and pay for medical expenses using money that is tax deductible. As long as it is used for qualified medical expenses, the money also stays tax free when it is withdrawn. There are annual contribution limits.
A health savings account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA. No permission or authorization from the IRS is necessary to establish an HSA. You set up an HSA with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider.
What are the benefits of an HSA?
- You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040.
- Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
- The contributions remain in your account until you use them.
- The interest or other earnings on the assets in the account are tax free.
- Distributions may be tax free if you pay qualified medical expenses.
- An HSA is “portable.” It stays with you if you change employers or leave the work force.
The HSA is simply a tax-free savings account that is designed to work together with a high-deductible health plan. The HSA covers routine medical expenses while the accompanying insurance policy protects against major medical or catastrophic events.